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United Way chair fined for Livent misconduct

The head of the United Way in Canada and two other auditors face fines and legal costs totalling $1.55 million for professional misconduct in the Livent Inc. accounting scandal.

By Tony Van AlphenBusiness Reporter

Fri., Oct. 26, 2007

The head of the United Way in Canada and two other auditors face fines and legal costs totalling $1.55 million for professional misconduct in the Livent Inc. accounting scandal.

Ontario's professional body for chartered accountants has hit Doug Barrington, current chair of the United Way and a retired partner at the Deloitte auditing firm, with a fine of $100,000 for misconduct and another $417,000 to cover costs of lengthy hearings and an investigation.

The body, the Institute of Chartered Accountants of Ontario, has also levied similar fines and costs against Anthony Power, another retired Deloitte partner, and Claudio Russo, who works in the firm's Toronto office. The trio also received reprimands from the institute.

The $100,000 fines are the biggest financial penalties in the institute's 128-year history. They followed the longest hearing ever at the institute in which a panel considered 192 exhibits and encountered numerous delays.

Lawyers for the institute's professional conduct committee spent 2,138 hours on the case.

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Barrington and Power could not be reached for comment yesterday about the recent decision on penalties while Russo referred a call to a Deloitte official.

Deloitte spokesperson Jacqui D'Eon confirmed the three individuals will appeal the findings and penalties.

United Way president Al Hatton said the national charity would not make a decision on Barrington's continuing involvement until resolution of the appeal. But Hatton described Barrington as "an exemplary volunteer" for the past decade.

The institute investigated Deloitte auditors after Toronto-based Livent, a theatre production company, collapsed in the late 1990s under a mountain of debt and serious questions about its financial reporting.

Police charged four Livent executives with fraud including chief executive Garth Drabinsky and president Myron Gottlieb in 2002. The case has not reached trial yet.

The institute expelled Livent senior vice-president Gordon Eckstein and later fined him $25,000 for improper accounting practices. It fined and suspended the licences of three other Livent officials.

In sanctioning the three Deloitte partners, the institute said Barrington, who retired from the firm this year as vice-chairman, could have looked forward to being appointed as a director of public companies.

"The panel accepts that the finding of guilt with respect to the charge brought against him will necessarily delay such appointment and could, with respect to the largest companies, preclude such an appointment," the institute's discipline committee said.

The finding of misconduct against Power won't affect his career but would have a negative impact on "his otherwise unblemished and impressive reputation," according to the committee.

Russo, who eventually became a leader in the Deloitte's Halifax office before returning to Toronto, will have to live with the misconduct finding "for the rest of his career," the committee added.

In its findings earlier this year, the committee described the Livent case as a "$100 million fraud.''

The committee noted in the sanctions that the institute did not allege the three Deloitte auditors knew or should have known about fraud at Livent.

However, the committee said the Deloitte auditors knew Livent was a "high-risk audit, yet, they failed to exercise the required degree of professional skepticism."

The committee ruled the three auditors accepted Livent's recognition of millions of dollars in theatre naming and density rights as revenue without completing proper agreements to meet accounting standards.

The committee also found Power and Russo did not compare Livent production budgets with actual results from 1996 to 1997 to assess cost recovery and failed to reassess management's representations after accepting an extra writedown of $27.5 million in pre-production expenses.

They also did not re-evaluate audit procedures after finding unrecorded liabilities and did not ensure financial statements disclosed another firm had recourse against the theatre company, the committee said.

It noted a letter from counsel for the auditors and Deloitte about responsibility for the firm's audit opinion was not factually correct and misled the committee.

"The letter was never corrected," the committee said. "The actual facts only became known eight months after the letter was filed."

Testimony at the hearing revealed another Deloitte auditor disagreed with the letter. He had also objected to releasing the firm's audit opinion for Livent in 1997 and to continuing to work for the theatre company after questions arose about its operations.

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